The ECB could cut rates as early as April 2024. Today, the focus is on the US labor market data

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) was up by 0.17%, while the S&P 500 Index (US500) added 0.80%. The NASDAQ Technology Index (US100) closed positive by 1.37% on Thursday.

A positive for stocks yesterday was Alphabet (GOOG) shares rising more than 5% after Google released Gemini, “the largest and most capable artificial intelligence model” the company has ever developed. Additionally, Advanced Micro Devices (AMD) shares are up more than 5% after the company unveiled its new accelerator chip MI300, saying the processor will be able to run artificial intelligence programs faster than competing products.

US weekly initial jobless claims rose by 1k to 220k, matching expectations. Today, the US will release its monthly nonfarm labor market report. The unemployment rate is expected to be 3.9%, and Nonfarm Payrolls are expected to increase by 180k in November compared to 150k in October. A strong (better than expected) report could undermine bets that the Fed will start easing its restrictive monetary policy sooner than expected, which would serve as a headwind for a rally in equities and bring back confidence in the dollar, at least temporarily. On the other hand, a weak Nonfarm report (worse than expected) will increase investor fears that the labor market and economy are cooling. If the data comes out in line with expectations, it is unlikely to do much to shake market expectations for several Fed rate cuts next year, which will only add to market volatility.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) decreased by 0.16%, France’s CAC 40 (FR40) fell by 0.10%, Spain’s IBEX 35 (ES35) lost 1.09%, and the UK’s FTSE 100 (UK100) closed negative 0.02%. Recent economic data from Germany has heightened fears that the industrial sector will continue to have a negative impact on the Eurozone’s largest economy. Germany’s industrial sector is struggling: industrial production in Germany unexpectedly fell in October, a day after industrial orders in the country’s largest Eurozone economy also unexpectedly fell in the same month.

On Thursday, the euro fell to its lowest level against the Swiss franc in nearly nine years as markets bet on an imminent interest rate cut by the European Central Bank (ECB). Currently, the difference between short rates in the Eurozone and Switzerland is around 225 basis points, but markets expect this to narrow to 150 in the next 12 months. This makes the euro less attractive than the Swiss franc. Analysts at Goldman Sachs believe the ECB will cut interest rates by 25 basis points (bps) at each meeting starting next April. Economists at the brokerage forecast that the ECB’s deposit rate will reach 2.25% by early 2025. BNP Paribas also expects the ECB to make its first interest rate cut in April 2024 and to “gradually reduce rates” over the year, citing weak economic activity and weakening inflation. BNP chief economist Luigi Speranza believes the ECB’s prime rate will be 3.25% by the end of 2024, down from 4% currently.

Crude oil and gasoline prices on Thursday continued Wednesday’s sharp decline. Crude oil fell to a five-month low. Concerns about a global crude oil supply glut continue to weigh on oil prices. In addition, doubts about whether the OPEC+ agreement to cut crude oil production will be honored are weighing on prices.

High inventories caused by carryover balances from the mild winter of 2022/23 and weak heating demand have depressed natural gas prices. As of December 3, natural gas storage in Europe was 94% full, above the 5-year seasonal average of 84% for this time of year.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) fell by 1.76%, China’s FTSE China A50 (CHA50) was down by 0.16%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.71%, and Australia’s ASX 200 (AU200) ended Thursday negative 0.07%.

The Nikkei 225 (JP225) fell sharply on Thursday, while the yen rose sharply to hit a 4-month high against the dollar. The yen saw a massive short-covering in the yen on Thursday as comments by Bank of Japan (BoJ) Governor Ueda in the Japanese parliament reinforced speculation that the BoJ would soon exit ultra-easy monetary policy. On Wednesday, Deputy Governor Ryozo Himino discussed the potential impact of an exit from ultra-loose monetary policy on the economy. Their joint comments “fueled the fire.” Japanese five-year bond yields witnessed the most aggressive sell-off in a decade. However, Ueda remained of the view that policy would remain loose in the near term, citing the need to stimulate economic growth. This view was bolstered by Japan’s revised third-quarter gross domestic product data, which showed a bigger decline in economic growth than initially expected.

India’s central bank (RBI) left its key lending rate unchanged at 6.5% on Friday as growth in the world’s fastest-growing economy remains robust and the inflation outlook uncertain. The central bank also raised its economic growth forecast to 7% from 6.5% after stronger-than-expected growth in July-September. RBI forecasts consumer inflation at 5.4% in 2023-24.

S&P 500 (US500) 4,585.59 +36.25 (+0.80%)

Dow Jones (US30) 36,117.38 +62.95 (+0.17%)

DAX (DE40)  16,628.99 −27.45 (−0.16%)

FTSE 100 (UK100) 7,513.72 −1.66 (−0.022%)

USD Index  103.64 −0.51 (−0.49%)

• – Japan GDP (q/q) at 01:50 (GMT+2);
• – German Final Consumer Price Index (m/m) at 09:00 (GMT+2);
• – US Nonfarm Payrolls (m/m) at 15:30 (GMT+2);
• – US Unemployment Rate (m/m) at 15:30 (GMT+2);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.